A project has a payback period of five years and the firm employs a 10 percent cost of capital.Which of the following statements is correct concerning this Project's discounted payback?
A)discounted payback will exceed five years.
B)discounted payback will be less than five years.
C)discounted payback will decrease if the Project's IRR exceeds 10 percent.
D)discounted payback will increase if the Project's IRR is less than 10 percent.

Question

Quizplus · Accepted Answer

Discounted payback period will always be greater than the regular payback period if the cost of capital is positive. This is because the discounted payback period takes into account the time value of money, which decreases the value of future cash flows. Therefore, the discounted payback period will exceed five years in this case.

A Project Has a Payback Period of Five Years and the Firm